Building Financial Systems with the Twisp Accounting Core

Defining financial services

In this section, we'll guide you through the process of identifying the financial services your system will provide and determine the specific requirements for each service.

1. Identify the financial services your system will provide

Start by defining the financial products and services your system will offer, such as checking accounts, savings accounts, loans, and credit cards.

2. Determine the specific requirements for each service

Once you have identified the financial services your system will provide, you need to determine the specific requirements for each service. This includes account types, transaction types, and fees associated with each service.

A hypothetical neobank, for example, might provide the following services:

• Checking Accounts: These accounts will support deposits, withdrawals, and direct transfers between customers. You'll need to create a chart of accounts that includes customer checking accounts, as well as internal company accounts for tracking revenue and expenses.

• Savings Accounts: Similar to checking accounts, these accounts will also support deposits, withdrawals, and transfers. You may also want to include interest calculations and fees for certain actions, such as withdrawing funds before a specified period.

• Loans: For loan products, you'll need to track the principal balance, interest rate, and repayment schedule. You'll also need to create accounts to represent loan disbursements and repayments.

With Twisp, you can create a flexible chart of accounts to model the economic activities required for your specific use case. Additionally, Twisp enables you to define transaction codes to represent different types of financial activities, such as deposits, withdrawals, transfers, and fees. This will help you design a robust and adaptable system to support the financial services you offer.

In the next section, we will delve into designing accounts and transactions to support these financial services using Twisp's accounting core features.

Designing accounts and transactions

In this section, we will walk you through the steps to design and create a chart of accounts and transaction codes for different types of financial activities. This process is crucial for organizing your financial data and establishing rules for posting transactions to accounts.

1. Create a chart of accounts

A chart of accounts models all the economic activity that your financial system will provide. It is the basis for creating balance sheets, P&L reports, and for understanding the balances for the customer and business entities your system services.

To create a chart of accounts, you need to:

1. Identify the different account types you need to support your financial services. These can include assets, liabilities, income, and expenses.
2. Create accounts for each type and purpose. For example, you might have accounts for customer wallets, settlement accounts for ACH transactions, and accounts for revenue.
3. Organize accounts into sets using the AccountSet type. This will help you manage hierarchical tree structures and roll up balances across multiple accounts.

2. Define transaction codes

Transaction codes (tran codes) represent different types of financial activity, such as deposits, withdrawals, transfers, and fees. They encode the basic patterns for a type of transaction as a predictable and repeatable formula.

To define transaction codes, you need to:

1. Determine the type of transaction (e.g., ACH transfer, credit card purchase, foreign exchange).
2. Identify the accounts involved in the transaction. Determine where the money is coming from and where it is going, including any additional accounts that need to be debited or credited.
3. Establish the number of entries that should be written to the ledger for each transaction, as well as which entries go on the debit side and which on the credit side.
4. Specify whether these entries reflect a settled amount, or if they are still pending a final settlement.

3. Establish rules for posting transactions

Once you have designed your accounts and transaction codes, you need to establish rules for posting transactions to accounts based on the transaction codes.

This process involves:

1. Creating a framework for how transactions are recorded in the ledger. In Twisp, every transaction writes two or more entries to the ledger in standard double-entry accounting practice.
2. Ensuring that your transaction codes and accounts align with the double-entry accounting principles. For every transaction, there should be at least two entries that balance out across debits and credits.
3. Implementing the rules in your financial system to automatically post transactions to the appropriate accounts based on the transaction codes.

By following these steps, you can successfully design accounts and transactions to support your financial system built on the Twisp accounting core.

Security and compliance

Ensuring the security and compliance of your financial system is critical to protect sensitive data, maintain customer trust, and meet industry regulations. With Twisp, you have access to a secure, reliable, and scalable foundation to build your financial system.

Meet industry standards for security and data protection

Twisp's Financial Ledger Database (FLDB) is designed to provide strong guarantees about the lineage of data, ensuring the integrity, transparency, and accuracy of your financial data. Additionally, the Twisp Accounting Core is architected with adherence to strong, time-tested accounting principles, such as the enforcement of double-entry principles, immutable and append-only ledgers, and proper transaction contextualization.

Implement strong access controls and user authentication mechanisms

Twisp's infrastructure includes explicit authorization policies and dedicated security resources, ensuring that access controls are centralized and well-defined. By managing authentication and authorization centrally, you can more easily maintain a secure environment and minimize the risk of unauthorized access or data breaches.

Configure audit trails to track changes and maintain a history of transactions and account activity

The Twisp Accounting Core provides built-in mechanisms for timing and sequencing, which is essential for accurate auditing and reconciliation of financial data. By maintaining a complete, unbroken lineage of transactions and account activity, you can easily monitor your system's performance, usage, and compliance with industry regulations.

By leveraging the security features of Twisp's infrastructure and implementing appropriate access controls and audit trails, you can ensure that your financial system is secure, compliant, and ready for use in a modern financial product.

Integrations with Twisp accounting core

Integrating Twisp with other financial systems and business tools is essential for streamlining data flow, automating processes, and building a seamless financial ecosystem. In this section, we will discuss how to integrate Twisp with payment processors, banking APIs, CRMs, and ERPs.

1. Payment processors and banking APIs

To integrate Twisp with payment processors and banking APIs, you can use the GraphQL API. The API allows you to interact with the Twisp Accounting Core, manage transactions, and synchronize data with external financial systems. Here's how:

1. Identify the payment processor or banking API you want to integrate with and gather the necessary API credentials.
2. Develop a custom integration layer to handle communication between Twisp and the external system. This can involve sending transactions to the payment processor, receiving transaction updates, and synchronizing account balances.
3. Use the Twisp GraphQL API to post transactions, query account balances, and manage other financial data in your Twisp ledger. Ensure that your integration layer updates the Twisp ledger with any changes or transactions from the external system.

2. CRMs and ERPs

Integrating Twisp with Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems can help streamline data flow and automate processes. Here's how to integrate Twisp with these business tools:

1. Identify the CRM or ERP system you want to integrate with, and gather the necessary API credentials.
2. Develop a custom integration layer to handle communication between Twisp and the CRM/ERP system. This can involve synchronizing financial data, such as transaction records, account balances, and customer information, between the systems.
3. Use the Twisp GraphQL API to interact with the Twisp Accounting Core and manage financial data, such as posting transactions, querying account balances, and updating customer information. Ensure that your integration layer maintains data consistency between Twisp and the CRM/ERP system.

Following these steps will ensure a seamless integration between Twisp Accounting Core and other financial systems and business tools. By connecting Twisp with payment processors, banking APIs, CRMs, and ERPs, you can build a robust financial ecosystem that streamlines data flow, automates processes, and delivers a comprehensive solution for managing your financial operations.

Testing and validation

An essential step in building a financial system with Twisp Accounting Core is to test and validate the functionality, performance, and accuracy of the ledger and its calculations.

By performing comprehensive tests and validation checks, you can ensure that your financial system behaves as expected, and that the data it generates is reliable. In this section, we will walk through the testing and validation process for your Twisp-based financial system.

1. Test with sample data

Begin by populating your Twisp ledger with sample data that mimics the financial activity and transactions you expect to see in your final product.

Use the GraphQL API to create accounts, define transaction codes, and post transactions that cover a variety of use cases.

For example, in a hypothetical neobank you would create sample customer accounts for checking, savings, and loans, then post transactions such as deposits, withdrawals, transfers, and fees. By working with realistic sample data, you can identify potential issues and areas for improvement early in the development process.

2. Test various use cases

Ensure that your financial system can handle a wide range of scenarios by testing multiple use cases.

For instance, test the ledger's handling of edge cases, such as large transactions, insufficient funds, and high transaction volumes. Additionally, test the system's response to invalid or incorrect data, such as incomplete transaction details or incorrect account numbers.

This could involve simulating a large transfer between customer accounts, an attempt to withdraw more funds than a customer has available, or processing a high number of transactions within a short period.

3. Validate calculations and balances

As part of the testing process, it is crucial to verify that the balances reflect the intent of your account structures. To do this, compare the results produced by your financial system with manually calculated or known results.

You might check that the balances for each sample customer account are updated correctly after each transaction and that any applicable fees are calculated and applied accurately.

4. Assess performance and scalability

Finally, test your financial system's performance and ability to scale under increasing data and transaction volumes. Twisp's infrastructure is designed to provide high performance and support massively multi-tenant workloads. Still, it is essential to confirm that your specific configuration can handle your anticipated transaction volume and growth.

To test performance and scalability, you could simulate a large influx of new customer accounts and a high volume of transactions over a short period. Monitor response times, processing speeds, and overall system performance to identify any potential bottlenecks or areas for optimization.

By following these steps, you can ensure that your Twisp-based financial system functions correctly, provides accurate data, and performs well under varying conditions. This thorough testing and validation process will give you the confidence needed when working with mission-critical financial data and help you create a reliable and robust financial product.

Conclusion

Building financial systems with the Twisp Accounting Core offers a comprehensive approach to handling the complexities of modern financial operations. This guide has outlined the critical steps in this process, from identifying the financial services your system will provide and designing corresponding accounts and transactions, to enforcing strong security measures and ensuring compliance.

We also discussed the importance of effective integration with other financial systems and business tools to streamline processes, reduce manual intervention, and enhance overall efficiency. The value of thorough testing to ensure the system functions as expected, producing reliable and accurate data, cannot be overstated.

In essence, creating a robust, secure, and efficient financial system is a complex, yet feasible task with Twisp Accounting Core. By following the steps outlined in this guide, you'll be well on your way to developing a financial system that not only meets your current needs but is also equipped to handle future growth and changes in your financial landscape. Harness the power of Twisp and embrace the confidence that comes with a solid, reliable, and flexible financial system.